A third of debutants trade below their issue price

With the markets on a roll — the benchmark Nifty hit yet another high on Tuesday — more companies are making their debuts on the bourses, making 2007 set for a record as far as initial public offerings go.

Mumbai |
Published: October 20, 2017 6:34 AM

The BSE IPO index has yielded a return of nearly 44% since the beginning of the year. (Image: Reuters)

With the markets on a roll — the benchmark Nifty hit yet another high on Tuesday — more companies are making their debuts on the bourses, making 2007 set for a record as far as initial public offerings go. The BSE IPO index has yielded a return of nearly 44% since the beginning of the year. However, around one-third of the newly-listed companies including InvITs or infrastructure investment trusts are being traded below their issue price. Consultancy EY recently wrote that the re-emergence of larger listings in the pipeline could help India reach an expected target of `32,450 crore or $5 billion in proceeds for 2017. There has been particularly strong activity in the insurance sector due to regulatory changes and a number of major insurers are ready for their initial share sales. But here’s the thing: Despite the successful IPO trend, some companies are trading below their issue price. CL Educate and S Chand and Company from the education sector have their stocks trading 34% and 30.8%, respectively, below their issue price.

S Chand’s market capitalisation has dropped by Rs 56.79 crore in about a month while that of CL Educate has reduced to Rs 467.38 crore from Rs 489.19 crore a month ago. Kunj Bansal, ED and CIO of Centrum Wealth Management, said that there are companies that do not have good financials but may be valued expensively because of the activity in the IPO market. Infrastructure stocks IRB InvIT Fund, IndiGrid InvIT Fund and Bharat Road Network are trading below their issue price. In the pharma sector, Eric Life Sciences is trading 2.5% below its issue price.

GTPL Hathway, Security and Intelligence Services, Matrimony.com and SBI Life Security are among the others. Stocks of IRB InvIT Fund, IndiGrid InvIT Fund and Bharat Road Network have given negative 8.58%, 5.69% and 13.86% returns since their listing. “IRB InvIT is trading below its issue price because they disappointed in terms of toll growth numbers in the first quarter. Due to demonetisation, traffic toll growth came down substantially. During the IPO the company said the toll growth would grow at around 9 to 9.5%. That is why there is pressure in IRB InvIT,” said Prem Khurana, research analyst at Anandrathi.

This refers to the statements: "Despite the successful IPO trend, some companies are trading below their issue price." and that "that there are companies that do not have good financials but may be valued expensively because of the activity in the IPO market," which strategy was exploited by unscrupulous promoters. Many of such promoters had vanished from the capital market, decamping with investors' hard earned money, without a trace. For instance, the Registered Office of one company was located in a cowshed. The latest phenomenon is worth the attention of MCA, before it is too late.